Confused with all the media hype about INTEREST RATES?

You are not alone.  With news reports about the lowest interest rates in decades, and references to rates at 4.63%, loan officers' phones have been ringing off the hook.  But are those reports accurate?

The answer is yes and no.  The media is frequently guilty of providing only some of the facts.  In their defense, most are not experts on mortgage financing and they report the pieces of information that they know will attract attention (media hype).  Although the reference to interest rates is date specific in this report, the concept is one you should understand and continue to apply. 

By the end of the day on Friday, April 3rd, there WERE 4.63% interest rates, but what the media omitted was that those rates were either 15 year fixed with no points, or 30 year fixed with .75 points.  In other words, media rate quotes come with unreferenced caveats, so the story--or report, as they like to state it--is incomplete.

Mortgage interest rates are posted daily. They are an integrated function of bonds and mortgage backed securities (MBS) prices that are also traded daily in the market. Rates are subject to change every day, and sometimes several times within the trading day. When bond and MBS prices go up (which means traders are buying them because they like the security and return), mortgage rates go down. Just like the stock market, interest and demand in these trading instruments can fluctuate by the hour—or minute— depending on external influences, e.g., inflation threats, concern about excess govern­ment debt, etc. Also, when there is good profit or revenue news with major corporations, stocks become appealing to investors who only have so much money to invest. At those times, bonds and MBS experience the same attention-deficit as the Maytag repairman, and their prices go down, which means interest rates are pressured upward. If you have­n’t picked up on the bond/MBS price relationship to mortgage interest rates, it is inverse.

Now I am going to take a big leap. If you don’t believe what I am stating here, I am go­ing to refer you to a competitor’s website whose information I can’t control, and who has a realistic daily mortgage rate posting. It is www.usatoday.com/money. Then click on “Personal Finance” and “Mortgage Rates” in the drop-down box and you will see national averages for all rates. At the end of the day on Friday, April 3rd, that site said 30 year rates were at 5.06% and rising. That corresponds to all the market news and rate postings I ob­served on that day.

The moral of this story is this: Gather all the facts and manage your expectations accord­ingly. If you were parked on the sidelines waiting for 4.75% or lower on a thirty year fixed, you've lost your chance for the time being. The good news is that the opportunity could resurface, but only if traders once again turn their attention to the sometimes lonely bond and MBS market.

Joseph Ferraro (April 4, 2009)